Customer Service and Federal Express
Federal Express – delivering the goods
Kevan Scholes
This case study looks at how new business models can create vast improvements in competitiveness. However, the models must be suited to the business environment at the time and will have a ‘shelf-life’ as the business environment changes. The case study looks at one on the world’s most successful adopters of a new business model that transformed the airfreight and package delivery sectors worldwide. But the advent of the internet in the mid-1990s meant that the FedEx business model had to change or the company would decline. This is also the story of how it rose to that challenge. l l l
In 1965, Yale University undergraduate Frederick W. Smith wrote a term paper about the passenger route systems used by most airfreight shippers, which he viewed as economically inadequate. Smith wrote of the need for shippers to have a system designed specifically for airfreight that could accommodate time-sensitive shipments such as medicines, computer parts and electronics. In August of 1971 following a stint in the military, Smith bought a controlling interest in Arkansas Aviation Sales, located in Little Rock. While operating his new firm, Smith identified the tremendous difficulty in getting packages and other airfreight delivered within one to two days. This dilemma motivated him to undertake research on how to resolve the inefficient distribution system. In an interview with Fortune Small Business in 2002 he explained his business model for solving the problem:
My solution was to create a delivery system that operates essentially like a bank-clearing system does. Put all points on a network and connect them through a central hub. If you take any individual transaction, that kind of system seems absurd – it means making at least one extra stop. But if you look at the network as a whole, it’s an efficient way to create an enormous number of connections. . . . If, for instance, you want to connect 100 markets with
Kevan Scholes
This case study looks at how new business models can create vast improvements in competitiveness. However, the models must be suited to the business environment at the time and will have a ‘shelf-life’ as the business environment changes. The case study looks at one on the world’s most successful adopters of a new business model that transformed the airfreight and package delivery sectors worldwide. But the advent of the internet in the mid-1990s meant that the FedEx business model had to change or the company would decline. This is also the story of how it rose to that challenge. l l l
In 1965, Yale University undergraduate Frederick W. Smith wrote a term paper about the passenger route systems used by most airfreight shippers, which he viewed as economically inadequate. Smith wrote of the need for shippers to have a system designed specifically for airfreight that could accommodate time-sensitive shipments such as medicines, computer parts and electronics. In August of 1971 following a stint in the military, Smith bought a controlling interest in Arkansas Aviation Sales, located in Little Rock. While operating his new firm, Smith identified the tremendous difficulty in getting packages and other airfreight delivered within one to two days. This dilemma motivated him to undertake research on how to resolve the inefficient distribution system. In an interview with Fortune Small Business in 2002 he explained his business model for solving the problem:
My solution was to create a delivery system that operates essentially like a bank-clearing system does. Put all points on a network and connect them through a central hub. If you take any individual transaction, that kind of system seems absurd – it means making at least one extra stop. But if you look at the network as a whole, it’s an efficient way to create an enormous number of connections. . . . If, for instance, you want to connect 100 markets with